2. Chapter 1 - Introduction to mSCOA_Final - MFMA

Demystifying Standard Chart of Accounts
Chapter 1 – Introduction to standard chart of
Accounts (mSCOA)
Presented by National Treasury: Chief Directorate Local Government Budget Analysis
• Explain the legislation enabling mSCOA in the local
• Explain the purpose and objectives mSCOA for local
• Explain the financial management reform process and
the impact on mSCOA.
• Discuss the roles and responsibilities of the Accounting
Officer, Treasuries and mSCOA technical committee.
• Explain the impact of reporting requirements has on
• Understand what the mSCOA training is addressing.
The Road to mSCOA – The Budget Reform
• We have embarked on the long-term local government financial reform
programme (Evolutionary)
– MFMA Implementation in 2003
• We have issued a suite of regulations:
Draft Municipal Finance Misconduct Regulation (July 2012)
Municipal Budget and Reporting Regulations (April 2009)
Municipal Asset Transfer Regulations (August 2008)
Municipal Regulations on Debt Disclosure (June 2007)
Municipal Supply Chain Management Regulations (May 2005)
Municipal Investment and PPP Regulations (April 2005)
• We have developed a comprehensive budgeting system (Municipal Budget
and Reporting Regulations)
• We have developed a conditional grant monitoring system
• Institutionalized annual engagements with the 17 non-delegated
The Road to mSCOA – The Budget Reform
The budget reform programme was launched in 2009 with the publication of the
regulations - Government Gazette 32141 dated 17 April 2009 : Municipal Budget and
Reporting Regulations
– To secure sound and sustainable management of budgeting and reporting practices
of municipalities and municipal entities by establishing uniform norms and standards
and other requirements for ensuring transparency, accountability and appropriate
lines of responsibility in the budgeting and reporting processes of those institutions
and other relevant matters as required by the Act.
Introduced standardised budgeting reporting and formats
Improved LG sphere’s ability to deliver basic services to all through:
– Improved financial sustainability
– Facilitation of medium term planning and policy choices on service delivery
Standardised reporting and formats improved
– Credibility, Sustainability, Transparency, Reliability, Relevance; and
– Comparability of budgets and in year reports of municipalities and entities
The Road to mSCOA - The Budget Reform
Envisaged improvements
Guided by the Constitution and the MFMA
Promote transparency and accountability
Strengthens the link between policy priorities, planning, budgeting,
implementation and reporting
Forms the basis for the Medium Term Revenue and Expenditure
Framework for municipalities (MTREF)
Facilitates inter-local government comparability (to demonstrate the
effective use of resources and to inform allocation decisions)
Consistent budget and reporting formats that will support GFS
Improve golden thread of reporting - adopted budgets, in-year
reporting, AFS and Annual Report
The Road to mSCOA – Was the budget
reform enough?
• Problem statement (1)
– 278 different municipal ‘charts of accounts’ (COA) aggregation of budget and other
information extremely difficult with inconsistent use of account labels and definitions across
– Quality of municipal information is compromised due to lack of uniform classifications
for revenue and expenditure items (posting level)
– Lack of consistent information across the IDP, Budget, SDBIP, IYM and AFS
– Compromises monitoring and oversight by Councils, DCoG, treasuries and
legislatures. In illustrating, 4th Quarter results – 2011/12 municipal MTREF:
• Aggregate under spending of the adjusted operating budget – R22.3 bn or 10.2%
• Aggregate under spending of the adjusted capital budget – R14,8 bn or 32.3%
• Under spending of conditional grants was R5.1 bn or 25.3%
• Can this be attributed to ineffective budgeting and financial management
practices? Over ambitious expenditure appropriations; unfunded budgets; lack of
credibility in reporting (S71) – pure compliance; or a mixture)
• This could further lead to incorrect decision making due to incorrectly classified
– Compromises government’s ability to formulate coherent policies affecting local
government, and its ability to use the budget as a redistribution tool to address poverty
and inequality
– Municipalities continuously change and amend detail COA – No consistency year-onyear
The Road to mSCOA – Was budget
reform enough ?
• Problem statement (2)
– In the absence of meaningful and credible management information
municipal councils make uninformed decisions; considerable risk
Contributing factor to weak audit opinions
Lack of ownership by finance practitioners; inconsistency in the
application of leading financial management practices corrupting the
COA information not easily obtainable in a useful format
Metadata not defined
Multi-year budgeting is a relatively new concept; constant changes
to the COA impedes the ability to plan over the medium-term
Electronic budget returns and in-year reporting not aligned to the
adopted budget and budget information published by municipalities
The Road to mSCOA
A need was identified for a
standard Chart of Accounts
for Municipalities and
Municipal Entities
The mSCOA journey begins
The Road to mSCOA
National and Provincial
The road to mSCOA – Legislative
The Road to mSCOA – Legal framework
Constitutional Requirements
Section 216(1) of the Constitution states that:
National legislation must establish a National Treasury and prescribe
measures to ensure both transparency and expenditure control in each
sphere of government, by introducing (a) Generally recognised accounting practice
(b) Uniform expenditure classifications; and
(Standard Chart of Accounts / General Leger)
(c) Uniform treasury norms and standards
(MFMA, Regulations, Circulars and Guidelines)
The Road to mSCOA – Legal framework
MFMA Requirements
Section 168 (1) of the MFMA states that:
The Minister (of Finance), acting with the concurrence of the
Cabinet member responsible for local government, may make
regulations for, among other things –
(a) any matter that may be prescribed …and…
(p) any other matter that may facilitate the enforcement and
administration of the Act
The Road to mSCOA – The Regulations
• Local Government: Municipal Finance Management Act (56/2003):
Municipal Regulations on Standard Chart of Accounts (Gazette No. 37577)
– Key Objectives in preamble
improved data quality and credibility;
the achievement of a greater level of standardisation;
the development of uniform data sets critical for 'whole-of-government‘ reporting;
the standardisation and alignment of the 'local government accountability cycle' by the
regulation of not only the budget and in-year reporting formats but also the annual report and
annual financial statement formats;
the creation of the opportunity to standardise key business processes with the consequential
introduction of further consistency in the management of municipal finances;
improved transparency, accountability and governance through uniform recording of
transactions at posting account level detail;
enabling deeper data analysis and sector comparisons to improve financial performance;
the standardisation of the account classification to facilitate mobility in financial skills within
local government and between local government and other spheres as well as the private
sector and to enhance the ability of local government to attract and retain skilled personnel.
The Road to mSCOA – The Regulations
• Object of the regulations
– to provide for a national standard for the uniform recording and
classification of municipal budget and financial information at a
transaction level by prescribing a standard chart of accounts for
municipalities and municipal entities which
• are aligned to the budget formats and accounting standards
prescribed for municipalities and municipal entities and with the
standard charts of accounts for national and provincial government;
• enable uniform information sets recorded in terms of national norms
and standards across the whole of government for the purposes of
national policy coordination and reporting, benchmarking and
performance measurement in the local government sphere
The Road to mSCOA – The Regulations
The regulations apply to all municipalities and municipal entities
– For municipal entities the reporting in annual financial statements and annual
reports may differ due to commercial nature of some of the municipal entities.
– There is no exemption from the regulation for the application of mSCOA to
municipal entities.
Chapter 2
– Segments and classification framework for standard chart of accounts
• 7 Segments
– Implementation requirements
• 7 Segments
• must accurately record all financial transactions and data in the applicable segment.
• may not contain data which is mapped or extrapolated or which otherwise does not
reflect transactions recorded or measured by the municipality or municipal entity
• Financial and business application
– hosting of the general ledger structure
– capable of accommodating and operating mSCOA
– portal allowing for free access, for information purposes, to the general ledger of
the municipality or municipal entity, by any person authorised by the DirectorGeneral or the Accounting officer of the municipality
The Road to mSCOA – The Regulations
Chapter 3
– Minimum business process and system requirements
• These are still to be published
Chapter 4
– Technical committee for standard chart of accounts
• Composition of committee
• Function of mSCOA committee
Chapter 5
– Responsibilities of municipal functionaries
• Responsibilities of municipal councils and board of directors
• Responsibilities of accounting officers
Chapter 6
– General
• Access by National Treasury
• Postponement of implementation and exemption
The Road to mSCOA
National and Provincial
The Road to mSCOA – The Chart
Financial Reforms - Municipal Accountability
Understanding mSCOA
• Detailed Classification System
– Not GFS, GRAP or Budget Formats but classification system (Posting Level Detail) =
– Provide sufficient detail for reporting through combining/selecting from segment detail
into reporting formats prescribed by recognised stakeholders
– Reporting Formats – Provides report writer within financial systems application or
stakeholder databases
• What does this mean?
– Provide for detail to be added by municipalities
– Clearly defined account labels (Metadata)
– Accounts to be standardised for all Munics/ME/Agencies
– Comprehensive “Design Principles” for segments and account groups
– “Grid” to select what is applicable to the municipality
Overall Design Principles for mSCOA
Classification framework limited to financial information
International standards, guidance and best practices
Comply with legislative framework for local government
Labels and accounts to be clearly defined
Comprehensive framework (grid) to satisfy stakeholders needs
Information to be easily extracted
Alignment of financial and budget reporting formats
Integration of GRAP standards
Standardisation of terminology
Standardisation of transaction classification
Reporting on “whole-of-local government and government”
Simple classification
Financial system integration with optimised business and programme
Segments of SCOA for Municipalities
Roles and responsibilities – mSCOA Technical
• must review the classification framework and, where required, make
recommendations to the Minister on amendments to that framework;
• must develop guidelines and training material that are aligned to the
classification framework.
• must review the implementation of the standard chart of accounts in
government as a whole to ensure the alignment of the standard chart of
accounts provided for in the Regulations and the standard chart of
accounts applicable in national and provincial government;
• when required to align the mSCOA regulations with changes to other
legislation applicable to local government, must make recommendations
to the Minister on amendments to the mSCOA regulations;
• must undertake such other functions relating to the implementation the
Roles and responsibilities – National Treasury
mSCOA Project Sponsor on behalf of the National Treasury.
mSCOA Project Management leading up to 1 July 2017.
Core mSCOA Project Team for mSCOA Project Phase 4 (Change
Management and Training).
Assisting municipalities with budget implementation aligned to the
mSCOA classification framework.
Administrator and owner of the Local Government Data Base and
related reporting system (LGDBRS)
Benchmarking and budget oversight responsibility.
Overall stakeholder management (Internal and external)
Custodian of ensuring mSCOA is in compliance with relevant municipal
legislative framework and associated norms and standards.
Linkage of National and Provincial SCOA to mSCOA.
Responsible for the development, implementation and maintenance of
the classification framework for all 3 spheres of government.
Roles and responsibilities – Provincial
Key role player in the change management and communication process.
Oversee the implementation of mSCOA by all municipalities within the province
with the aim of full compliance by 1 July 2017.
Assist National Treasury in the risk management process.
Engage with all municipalities and share information, resolve queries and
provide guidance with implementation.
Logistical arrangements as it relates to provincial workshops, training sessions
and engagements.
Roles and responsibilities – other external role
Audit municipalities within the Constitutional Mandate.
Develop and inform production champions and auditors responsible for
municipalities as to the content and classification framework inherent to
Participate by sharing views, concerns and possible areas of non-compliance
with the Office of the Accountant-General
Active participation in the development of mSCOA.
Responsible for enforcing compliance to mSCOA as it relates to their mandate.
Support National Treasury in “training and change management process”.
Development of system functionality (financial application) in support of the
mSCOA classification framework, business rules, and reporting requirements at
a transactional level.
Actively contribute to the change management and awareness process.
Active participation in the development process
Roles and responsibilities – Within the
Governance, oversight over municipalities implementation of mSCOA and
managing risk inherent
Ultimately responsible for controls, administration and reporting in terms of the
Municipal Finance Management Act.
Responsible for adherence and compliance to all legislation and regulations
governing the municipality.
Involvement of Internal Audit and Risk Manager.
Delegating the necessary powers and duties to the appropriate officials.
Ensuring that the responsible officials have the necessary capacity by providing
training and ensuring that they attend training or workshops provided by National
Ensuring that the financial and business applications of the municipality or
municipal entity have the capacity to accommodate the implementation of these
Regulations and that the required modifications or upgrades are implemented
Roles and responsibilities – Within the
submitting reports and recommendations to the municipal council or the board of
directors, as the case may be, that provide for the adoption of any resolutions,
policies and budgetary provisions necessary for the implementation of the
Identification of Project Manager, Project Office and development of Project Plan
guiding the municipality with implementation
Oversight of progress with SCOA implementation.
Internal change management agent
National Treasury Training initiatives
18 Nov to 9 Dec
March to April 2015
National Treasury Training initiatives
July 2015 onwards

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